London stake sale boosts Alexander Forbes' profit

Johannesburg – The sale of Alexander Forbes Group’s 60% stake in UK-based Lane Clark & Peacock (LCP) boosted the company's bottom line by 80% for the year.

According to the group’s annual financial results for the year ended March 31, 2017, bottom line came to R1.6bn. This is up from the previous year’s profit of R874m. The “extraordinary profit” from the LCP sale helped bolster margins, the group explained.

Excluding the sale and other headline adjustments, Alexander Forbes would have seen an 8% decline in headline earnings to R683m. Headline earnings per share decreased 8% to 53.4 cents per share. This decrease would be as a result of reduced earnings from the exclusion of the LCP operations.

Alexander Forbes [JSE:AFH] earned £75.4m (R1.2bn) from the sale. So far R1.1bn has been recovered and the outstanding balance will be received in the next financial year.

READ: Alexander Forbes eyes opportunities in Africa

The sale was part of the group’s strategy to dispose of non-core assets. In an interview with Fin24 earlier this year, chief executive Andrew Darfoor explained that LCP was regarded as a non-core asset.  “LCP didn’t fit in the strategy … It’s a good business but I think that business would thrive more in an environment where it is core.”

The proceeds will be used to transform the group into an African financial services leader and some of the value of the proceeds will go back to the shareholders through a buy-back programme, said Darfoor. The buy-back was approved on March 27, 2017 and is yet to be implemented, the group’s report indicated.

The sale of LCP as well as proceeds from the African Rainbow Capital (ARC) 10% equity subscription of R753m, have placed the group in a firmer cash position.

A final gross dividend of 23c was declared, in addition to a special dividend of 23c.

Operating profit came to R933m, up 3% from R905m reported in 2016. Operating expenses of R2.5bn were 0.5% higher than the previous year (R2.49bn) due to inflationary pressure.  

Divisional performance

The group’s institutional clients which includes Consulting, Retirements and Investments; formerly known as Investment Solutions, generated operating profit of R465m, up 1% from the previous year.

Retail clients, which include Wealth and Investments and Retail Insurance Businesses generated operating income of R1.3bn, up 5% from the previous year.

Wealth and Investments' operating profit increased 15% to R378m, and retail insurance businesses' operating profit decreased 4% to R88m.

Sluggish growth in Africa

The operating profit for the financial service provider's emerging markets business, which includes Namibia, Botswana, Zambia, Uganda and Nigeria, declined 51% to R32m for the year. This is attributed to the low economic growth, the group explained.

Particularly in Botswana, the government started insourcing its Botswana Public Officers Pension Fund in 2016, and as a result the emerging markets business lost one of its largest clients. This impacted operating income negatively, additionally downsizing and redundancy costs contributed 2% to growth in costs.

Conditions in Nigeria were challenging, with the group’s operations in the country declining 51% to R32m.

However, in Namibia retail revenue increased by 10% for the year and assets increased 2%. 

The share was trading 2% higher at R6.63 at 14:30 on the JSE. 

SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.